Image courtesy of Flickr user MyFuture

On April 10, 2012, I made a mistake. Actually, I made three mistakes, maybe four, according to the bank. But that’s a matter of opinion.

On the 10th, I paid my credit card bill, a hefty $1,500. I didn’t have quite enough in my account, so I covered the difference (along with a couple other bills) with a $700 direct deposit.

At least I thought it did. I accidentally scheduled the direct deposit to arrive the next week.

Totally my fault. But what happened next is a story of how small mistakes snowball into much bigger financial problems.

In the past, if a consumer didn’t have enough money to cover a check or debit, a bank would simply deny payment. This led to bounced check fees, which are costly and damaging to credit scores. So banks came up with a new plan. Instead of letting a check bounce, they automatically “loan” their client money so that a debit is not returned. By 2006, 86 percent of banks operated at least one formal overdraft program.

This has become big business for financial institutions.

According to Moebs Services, banks took in $32 billion in overdraft fees in 2012, even though they make just 5 percent of their total revenue from checking accounts. Consumer watchdogs say these fees impose “hidden, unnecessary and potentially dangerous risks to consumers.” According to Pew Charitable Trust study, “overdraft fees … are a key factor that is driving low-income consumers out of the traditional banking system.”

And there just aren’t enough regulations or laws to protect us.

That’s how, in April, I wound up with three overdraft fees totaling $105, even though I could have easily covered those bills.

Three days later. I received a paper letter alert (a kindness — banks are under no obligation to tell their customers about their account overdrafts at all). I scrounged up my couch pennies and paid off my fees. After this debacle, I did sign up for an e-mail balance alert when my account dips below $150.

Banks say they’re doing consumers a favor by allowing them to write checks or use their debit card even when their account is too low. And thanks to a 2010 regulation, consumers must opt in to overdraft protection — so a saavy user can choose to have their bank reject debits that their accounts can’t cover.

But the fees these banks charge for this service add up quickly. And sometimes, they work in ways that seem to disadvantage the consumer.

Take Connecticut teacher Tim Percoski. Percoski signed up for overdraft protection, where a customer can have funds taken from a linked account if their primary account overdraws. They charge for that: $20 a pop in Percoski’s case.

“We all “oops”, right?” he said.

Percoski just figured he was being smart. Then one day, he says, three transactions cleared in one day. Each of the three cost him $20.

“I had more than enough in the account it was linked to,” he said. “The overdraft happened on my error (I never transferred between the account and thought I did), I was astounded at the policy they had in place.”

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It’s not the only shady policy that costs consumers money.

For example, some banks (nearly half, according to a Pew Charitable Trust study) re-order pending transactions, pushing large debits through first, then smaller debits, then credits to the account. This means if someone had $100 in their account but a $1,000 direct deposit coming in at the start of the business day, and that afternoon debited a $5 cup of coffee, then a $900 mortgage payment, then a $100 phone bill, instead of having $95 left, as one would assume, they would be staring at three overdraft fees, plus whatever the bank covered for the first bounced transaction.

And once the credit was processed, that excess $95 would not cover the fees, and the account would still be in the red. And if no one let the customer know, and the other bills were returned (as in my case), when the vendors tried to collect again, the customer would get slapped with two more overdraft fees to the tune of $70 dollars. The number of overdrafts charged varies from bank to bank, but some charge up to six fees a day. The CFPB has hinted that it may investigate (and begin to regulate) the practice more closely.

That’s what happened to Cece Azadi, a consumer in Georgia, who faced $750 in bank fees for a misjudged debit.

One morning, she checked her account to make sure she had money to pay an electric bill. It said she did, so she paid it. A few hours before, however, an automatic payment for another bill went through and just hadn’t posted.

At the same time, her husband made a few debits. They had a paycheck being deposited that day as well. But instead of the paycheck being credited, then the debits coming out in order, the bank processed the heaviest debits first, then the lighter ones, then posted the payment, resulting in several non-sufficient funds fees.

“You’d think in this digital age, banks would refuse to process a debit if the account can’t cover it,” Azadi said. But that’s not the case. Even though Azadi hadn’t signed up for overdraft protection, she was automatically enrolled. (Thanks to a new CFBP law, you must opt in to overdraft protections). So even as her balance dropped below zero, her bank loaned her the money to cover her withdrawals, charging interest and fees along the way.

Banks say that they reorder transactions to help consumers by making sure their most important payments, like mortgage or rent, don’t bounce. And Pew also found that financial institutions have done a better job disclosing their fees to consumers, using graphics that highlight key points. “The bottom line is that progress is being made,” Susan Weinstock, director of Pew’s safe checking research, told CBS News.

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But for many, change isn’t coming fast enough.

Cecily Luft, a neuro-psychology grad student in Texas, once found herself basically destitute, thanks to an error by her bank.

A transfer from one bank to another that was supposed to take three days wound up taking seven.

“The money was supposed to be in my account two days before my rent was due. The day before the rent was due, when the transfer had still not happened, I called my landlord and asked them not to send the automatic debit,” she said. “It was too late, they had already sent it.”

Luft was hit by  multiple bank fees, along with plus a fee from her landlord for the returned check.

For the four days her money was in limbo, she had only enough cash to put gas in the car, and had to choose between important medications and food.

“When they say it’s expensive to be poor, this is what they’re talking about,” she said. “The system penalizes lack of funds by reducing those funds even further. When you’re poor, having a bank account can actually cost more than the convenience is worth.”